State-Sponsored Pension System is California’s Titanic

Do California Legislators know the way to a San Jose styled Pension Reform?

California’s public pension system is a complete disaster. Not only does the state have the highest pension deficit in America, three California cities recently filed bankruptcy. The California legislature did nothing to avoid the escalating fiscal catastrophe and returns now after a month-long vacation to tackle public employee pensions.

Among the proposals frequently heard around Sacramento is the truly awful idea of launching a state-sponsored pension system for the more than six million private sector California workers. This idea is akin to providing the captain of the Titanic another boat to sink.

A state-sponsored pension system would wipe out many small businesses that simply cannot afford to pay the employer’s share of these pensions, especially when coupled with the increasingly heavy state, federal and health care taxes.

There is also the near certainty that funds allocated for a state-sponsored pension system will be funneled toward the current public employees unfunded liability. Thus, California will continue kicking the problem to future generations.

The California legislature needs look no further than San Jose for a model on how to meet the problem.

San Jose’s Mayor Chuck Reed and his allies negotiated with employee unions last year to craft a pension reform measure for voter approval.. “Measure B” created a new, low cost, hybrid retirement plan that includes Social Security and possibilities for either a defined benefit or defined contribution component.

No matter the shape of their specific plan, all new employees will contribute 50% of the total cost. Current employees can either pay an additional 4% to their current plan, with the possibility that this contribution will increase, or opt into the new hybrid plan. Measure B also gives the City Council the ability to suspend cost of living adjustments during fiscal emergencies, and requires voter approval for any future benefit enhancements. On June 6th, voters approved Measure B with 70% of the vote.

San Jose’s plan works because it stabilizes the pension system while also paying down the debt.

California legislators should implement a state version of the San Jose plan, putting an end to the defined benefit pension system for all employees and switching to a defined contribution system with employees increasing their contributions.

The new plan offered in San Jose is similar to the 401(k) plans offered by the private sector. Defined benefit plans like the ones the state has now guarantee specific benefits regardless of cost to taxpayers. Defined contribution plans establish a fixed payment toward benefits. Instituting defined contribution plans would prevent the endless cost escalations and abuse of pension funds as secret loans by politicians. Moving to defined contribution plans reduces the risk to taxpayers, provides lawmakers with a reliable cost estimate for budgeting and gives state workers control over their retirement funding.

The new California plan should guarantee that no government employer may pick up employees’ required contributions to pensions and that lawmakers fully fund the required contribution each year. In addition, until significant pension reform is enacted, pay raises for all public employees should be frozen, including step and cost-of-living increases.

Without action, all of California, including each county, city, town and school district, will go bankrupt. That means essential public services must be cut, government workers laid off, disrupting or eliminating public health, safety and education. There is no option for status quo or incremental adjustments. Drastic reforms, innovations and political courage are needed to save California. The Day of Reckoning is NOW for California lawmakers.

(Bob Williams is the President of State Budget Solutions. Originally posted on Fox & Hounds.)

Money doesnt care. Insolvancy brings court judgements that addresses fiscal irresponsibility. The upshot, no refuge for the socialist progressive burueacrats. Power and its rewards are poised to shift elsewhere.

Perhaps I misunderstand.
It seems to me that people are being offered a retread of the idea that the state (or the Federal govt) after taking their money on the promise of later return. It cannot and could never be fulflled. That promise is empty and so they wqant to be given the opportunity to expand on that game of promises by ‘a vote’ of the uninvolved to take even more money with the only real assurance being that the cycle can be repeated until all real earners leave the state.
Time to start burning politicians to keep warm this winter?

To solve the ‘problem,’ as is simply recognized, elimnate all those areas where the government puts itself in direct conflict with free enterprise and the citizen — using taxpayer money to work against those who labor and invest NOT for goverment but for themselves and thus all the people; the very ones that do real work and who have the perfect right to manage their own lives thank you very much.
Let the manipulators go out to look for a job for a change, to earn their own retirement, coming to your neighborhood very soon I hope.

Time to get the popcorn and have a seat. ITS BEGINNING! The nessesary readjustment to the obscene 40 year abuse of taxpayer trust, yup that means excessive bureaucracy size and public employee compensation, is finally imploding. Even now no California progressive will confess the obvious…..which makes it just that much more delicious; NO MONEY=GAME OVER!
Many sufferers have dreamed and died without seeing this unfolding spectacle of just desserts. WE freedom-loving California natives are privileged to spectate at its beginning. Maybe I’ll make a scrapbook.

There is no way out of this mess but bankruptcy and the legislature
will continue like lemmings jumping off the cliff. But since there is
no republican in any power, there will be no one they can blame.We
must reject Brown’s tax proposal in November. Force the financial issues and make pension changes. We need a Scott Walker type
who will get the union out of public employees.